Facebook's $3b humble brag of a fine announcement is brilliant comms
I don’t know about any of that. What I do know, however, is the slow-play, humble-brag way that Facebook chose to announce that it expects a fine between $3 billion and $5 billion for the Cambridge Analytica scandal and the access to personal data that Facebook allowed is straight-up genius communications strategy.
Maybe you learned about the fine from the New York Times or the Washington Post, but where those guys learned about the (maybe) pending fine was from Facebook’s readily accessible 1Q financial disclosure, which it has to put out by law anyway.
Just a heads up for you folks who don’t spend a ton of time on the Internets: Leading your financial disclosure with this quote:
"We had a good quarter and our business and community continue to grow," said Mark Zuckerberg, Facebook founder and CEO. "We are focused on building out our privacy-focused vision for the future of social networking, and working collaboratively to address important issues around the internet."
And then noting a $3 BILLION looming penalty from the FTC for privacy violations is called “trolling.”
For sure, Facebook has managed to turn this penalty announcement into a huge win. Oh, were you a stockholder worried about all this FTC buzz? Well, lemme just tell you that we here at Facebook can put a $3 billion penalty in a little asterisk, list it as an expense even though it hasn’t happened yet, and STILL SHOW A $2.4 BILLION NET PROFIT.
In a single quarter.
That allowed Facebook to add $1 billion in cash on hand in just three months, for a current total of more than $11 billion. Now, that doesn’t make them Apple, but there aren’t a whole lot of companies who can write a check for $3 billion and still have $8 billion just sitting in the bank. And that’s not even counting the $34 billion in securities they could sell off at any time, and so is the equivalent of cash.
Here’s their full discussion of the looming potential penalty:
In the first quarter of 2019, we reasonably estimated a probable loss and recorded an accrual of $3.0 billion in connection with the inquiry of the FTC into our platform and user data practices, which accrual is included in accrued expenses and other current liabilities on our condensed consolidated balance sheet. We estimate that the range of loss in this matter is $3.0 billion to $5.0 billion. The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome.
To be clear, even $5 billion leaves them with half a billion or so in net profit for the first quarter.
Now, the charitable among you might say, “Hey, they had to do this. To not inform stockholders about this looming penalty would be immoral. Maybe illegal. They had no choice.”
And maybe so. I’m not savvy enough in the legalities of SEC filings to know what their exact obligations are here, but I’m pretty sure they could have put this in a special “risk” section, or buried it a little bit. They certainly haven’t already taken the loss and I’ve never seen a company put a potential fine right on a balance sheet when the fine hasn’t even happened yet.
I think they wanted to get out ahead of this for a lot of good reasons:
This puts to rest all the speculation. How big is the fine going to be? Oh, leaker number 37 says Facebook is totally going to get whacked! Oh, here’s another speculative piece in another of 7,000 online tech mags. Etc. All that is put to rest. Everyone gets to put $3 billion in a headline and get some clicks and Facebook gets to rip the band-aid off.
This makes the announcement a good news story. Sure, they’re getting whacked. But, hey, we can get whacked, still show a huge profit and growth, and now we’ve put this all behind us. Let’s look forward to a future of stuffing some serious cash in our pockets!
This totally steals the FTC’s thunder. When (well, if) they do announce a penalty, no one will care. Yeah, yeah. $3 billion. Maybe $5 billion. Whatever. We already know that. Plus, FTC, we’ve seen how much of your “penalties” you actually collect. Facebook probably will never even have to pay that bill. Ho hum. What did Trump tweet this morning?
In the same breath, they get to say they care about privacy! You heard Zuck: We’re moving forward with a new privacy-focused Facebook empire. It’s gonna be totes privacy-focused! For sure. Facebook and privacy are besties. In the post-shame era, this is relatively commonplace, but I remain impressed by the shamelessness. Go for it, Facebook. Maybe someone will believe you. Maybe it’s even real. Who’s to say?
Finally, this ultimately just gets a ton of people looking at their financials, and the financials are great. For anyone concerned about Facebook’s future, they’re going to quickly move from the asterisk about the potential fine to all the other stats: $86 billion in stockholder equity, 26 percent increase in YoY GAAP revenue, etc. This is a healthy company rolling in cash. Privacy ain’t going to derail them. At all.
All in all, I say, “well done Facebook PR people.” Knocked it out of the park.
Now, the ball is definitely in the FTC’s court. While most people are marveling at the size of the fine, there are still quite a few commentators out there urging the FTC to do more. I mean, VW got hammered for almost $15 billion for the emissions scandal. Is our personal data really worth only a fifth of being lied to about how much smoke is coming out of our tailpipes.
The big question now is whether the FTC listens to someone like Marc Rotenberg and EPIC:
[T]he FTC should require Facebook to unwind the acquisition of both WhatsApp and Instagram. The companies should be reestablished as independent entities and Facebook should be required to disgorge the personal data unlawfully acquired from those firms.
Now THAT would hurt.
If I’m an FTC staffer, I’m going for it. What does the FTC have to lose?